Greek default may be avoided

16th June 2011

However, he warned political leaders in Athens they must agree to a new round of controversial austerity measures or the agreement would be meaningless.

The Financial Times (paywall) reports that Olli Rehn, the EU's economic commissioner, said the IMF deal would allow international lenders to disburse €12bn ($17bn) to Greece even without an agreement on a new €120bn bail-out for Athens, avoiding a default that would have come as early as next month.

A deal to distribute the new funds should be completed on Sunday at a meeting of eurozone finance ministers in Luxembourg.

This is a U-turn for the IMF, which had insisted that it could not pay its portion of the disbursement without a full second bailout package agreed, reports Financial Adviser.

Mr Papandreou has previously failed to get agreement on the austerity measures. He has announced a cabinet reshuffle and called a confidence vote for Sunday. But the Greek prime minister is struggling to form a new government amid defections from his own ruling party.

Germany has been calling for Greek bondholders to accept new, longer maturing bonds that would not have to be repaid for seven years – a move that would be considered a default by rating agencies.

But, according to Financial Times (paywall) reports, German officials are backing off slightly on this position and are suggesting putting off a bailout decision, including the involvement of private bondholders, until September when another €8bn payment to Greece is due.